Yen falls most in two months against dollar on election outlook

The yen fell the most in two months against the dollar after Prime Minister Yoshihiko Noda said he will dissolve parliament, paving the way for elections that polls show his Democratic Party of Japan will lose.

The dollar dropped versus the euro after Federal Reserve Vice Chairman Janet Yellen said she supports tying the central bank’s low interest-rate outlook to economic goals before U.S. retail sales fell for the first time in four months. Japan’s currency weakened versus all of its major peers amid speculation the opposition will win power and pressure the central bank into a more aggressive easing policy, undermining demand for Japanese assets. The pound fell after the Bank of England lowered its growth forecasts.

“Speculation about early elections in Japan is negative for the yen,” said Antje Praefcke, a senior strategist at Commerzbank AG in Frankfurt. “The market thinks that the new government will press for expanding monetary policy even further.”

The yen tumbled 1.1 percent to 80.21 per dollar at 9:15 a.m. New York time after declining 1.2 percent, the biggest drop since Sept. 14. It fell 1.4 percent to 102.31 per euro after dropping 1.5 percent, the largest decline against the common currency since Sept. 14. The dollar slid 0.3 percent to $1.2748 versus the euro after reaching $1.2662 yesterday, the strongest level since Sept. 7.

Retail sales in the U.S. fell 0.3 percent in October, following a 1.3 percent increase in September that was larger than previously reported, Commerce Department figures showed today in Washington. The median forecast of 83 economists surveyed by Bloomberg called for a drop of 0.2 percent.

Dollar Index

The Dollar Index was little changed after strengthening past its 100-day moving average yesterday for the first time since Aug. 28 and touching 81.241, the most in more than two months.

Yellen joined three other Fed officials who have endorsed tying zero interest rates with progress on fighting unemployment as a way to provide more clarity on the central bank’s outlook for monetary policy. The policy-setting Federal Open Market Committee, which said last month it expects to keep its benchmark rate near zero through at least mid-2015, releases minutes from its October meeting today.

“Yellen sounded even more dovish than current Fed guidance,” Geoffrey Yu, a strategist at UBS AG in London, wrote in a note to investors. “The prospect of accommodative Fed policy for longer” has supported demand for higher-yielding assets, he wrote.